5 Reasons Not To Slow Down Even When Your Retirement Balance Is Up
Written by
G. Brian Davis
Edited by
Chris Cluff
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There’s plenty to like in Fidelity’s Q1 2024 Retirement Analysis report.
Average balances reached highs not seen since 2021, with average IRA balances hitting $127,745. Average 401(k) balances stretched upward to $125,900, boosted by record high contribution rates of 14.2%. That reflects a combination of employees contributing 9.4% of their paychecks and employers chipping in an extra 4.8%.
Should you pop a bottle of champagne and declare “mission accomplished”?
Hardly. Here’s why you should keep your foot on the pedal to keep growing your retirement nest egg.
You Can’t Take Today’s High for Granted
Stock indexes in the United States and around the world have reached record highs in the first half of 2024.
That’s great — and it can’t continue indefinitely. The stock market isn’t an elevator that only goes up. Like a toddler after a shot of espresso, markets don’t sit still. Stocks rise, then fall, then rise some more. They overshoot their fundamentals, correct downward, then rebound after overcorrecting.
Another bear market will amble along, sooner or later. And when it does, you won’t like what you see when you check your retirement account balance.
But that doesn’t mean you should try to time the market, either.
Time in the Market Matters More Than Timing the Market
Say it out loud: “No one can consistently time the market.”
The smartest, best informed economists and market analysts in the world can’t predict market highs and lows. If they can’t do it, you certainly can’t.
They can’t even accurately predict recessions, much less volatile stock markets. Remember when several major banks and Bloomberg Economics predicted a “100% chance of recession” in 2023? Spoiler alert: it didn’t happen.
Instead, take advantage of compounding returns. Reinvest dividends and interest automatically. Start earning returns on your returns, in a virtuous cycle of upward growth.
Employer Matching
Many employers offer to match your retirement account contributions, up to a certain percentage. But you can’t catch up on these later — you only get matching contributions up to the limit in each individual paycheck.
So every paycheck you fail to capitalize on these is lost money. It’s gone forever.
Take your employer up on their offer, because it’s effectively free money.
Annual Contribution Limits on Tax-Advantaged Accounts
You can only contribute so much to each tax-advantaged account each year. Miss the annual window and again, it’s gone forever.
Consider maxing out at least your IRA contributions each year to slash your tax bill and boost your retirement savings. You can take the tax savings today in traditional accounts, or prepay taxes and let your contributions compound tax-free in Roth accounts.
Optimized Returns From Rebalancing
Many robo-advisors and investment advisors periodically rebalance your accounts for you. That helps you consistently sell high and buy low, and optimize your returns over the decades of your working career.
Final Thoughts: Dollar Cost Averaging
Slow and steady worked out well for the tortoise, and it works just as well for retirement investing.
Keep plowing a certain percentage into your retirement investments every paycheck. The market will dart up and down as it always does, but over time you’ll earn the high long-term average returns on stocks if you keep investing consistently.
Known as dollar cost averaging, it’s not a “sexy” or “exciting” way to invest, but it will get you where you want to go. If you want excitement, put $20 in crypto and watch it gain or lose half its value over a few days. Just don’t count on it to pay your bills in retirement.
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